Co-movements of sector index returns in the world's major stock markets in bull and bear markets: Portfolio diversification implications

Ilhan Meric, Mitchell Ratner, Gulser Meric

Research output: Contribution to journalArticlepeer-review

31 Scopus citations

Abstract

In this paper, principal components analysis and Granger causality tests are used to study the portfolio diversification implications of the co-movements of sector indexes in the US, UK, German, French, and Japanese stock markets in bull and bear markets. We find that, in a bull market, investors can obtain more benefit with global diversification than with domestic diversification even if they invest in the same sector in different countries as opposed to investing in different sectors within the same country. In a bear market, the sectors of different countries tend to be more closely correlated and country diversification opportunities are limited.

Original languageEnglish (US)
Pages (from-to)156-177
Number of pages22
JournalInternational Review of Financial Analysis
Volume17
Issue number1
DOIs
StatePublished - 2008

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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